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	SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
(Mark One)	FORM 10-K
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2003
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	Commission File Number: 0-24908
	TRANSPORT CORPORATION OF AMERICA, INC. (Exact name of registrant as specified in its charter)
	Minnesota (State or other jurisdiction of incorporation or organization)	41-1386925 (I.R.S. Employer Identification No.)
	1715 Yankee Doodle Road Eagan, Minnesota 55121 (Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (651) 686-2500

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:      Common Stock, $.01 par value
                                                                                                        Preferred Stock Purchase Rights

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES  X   NO    .

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2): YES      NO   X  .

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $26,821,590.

As of March 4, 2004, the Company had outstanding 7,035,849 shares of Common Stock, $.01 par value.

Documents Incorporated by Reference: Portions of Transport Corporation of America, Inc.'s Proxy Statement for the 2003 Annual Meeting of Stockholders to be held May 27, 2004 are incorporated by reference into Part III of this Form 10-K to the extent described in such part.

TRANSPORT CORPORATION OF AMERICA, INC.

PART I

Item 1.        BUSINESS

Overview

        Transport Corporation of America, Inc. (the “Company” or “Transport America”) provides a wide range of truckload carriage and logistics services in various lengths of haul in the United States and parts of Canada. The Company has designed its business to provide high-quality, customized transportation and logistics services that allow it to be a preferred partner or core carrier to major shippers. The Company serves as an integral part of the distribution system of many of its major customers. The principal categories of freight hauled by the Company are department-store merchandise, grocery, industrial, consumer, paper products, and expedited services. The Company commenced substantial operations in 1984.

        The Company’s customers require time-definite pickup and delivery to support just-in-time inventory management, specialized equipment, such as temperature-controlled trailers, trailers designed to support decking, multi-stop loading and unloading, and sophisticated electronic transaction capabilities to automate the exchange of order, load, and billing data. The Company also provides logistics services by arranging transportation for customers with other third-party transportation providers. To support these complex customer requirements and deliver logistics services cost-effectively, Transport America has developed a sophisticated information management system which it believes makes it a technological leader in the industry.

        The Company carries out its business strategy by assigning an experienced marketing representative to each customer to tailor its services, and by providing a wide range of transportation services, including line-haul, multi-stop capability, regional and local operations, van trailers with and without refrigeration or temperature control, time-definite pickup and delivery, satellite-monitored transit, and information technology services. The Company also places operations personnel on-site at certain of its customer’s facilities to enhance its services. As part of its mission to serve the transportation and logistics needs of its mostly Fortune 500 customers, Transport America also provides dedicated transportation and logistic services.

        The Company completed acquisitions of two private truckload carriers, North Star Transport, Inc. (“North Star”) and Robert Hansen Trucking, Inc. (“RHT”) in 1998 and 1999, respectively. The operations of these carriers were integrated into those of the Company shortly after each acquisition.

        In 1999, the Company formed TA Logistics, Inc. (“TA Logistics”), a wholly owned subsidiary. TA Logistics provides services related to transportation procurement and logistics processes. Operations of TA Logistics commenced in the first quarter of 2000.

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Customer Focus and Services

        The Company has designed its business to be a core carrier or preferred partner to major shippers by providing high-quality, tailored transportation and logistics services. The Company serves as an integral part of the distribution system of many of its major customers. The principal categories of freight hauled by the Company are department-store merchandise, grocery, industrial, consumer, paper products, and expedited services.

        During 2003, the Company’s largest 5, 10, and 25 customers accounted for approximately 29%, 44%, and 63%, respectively, of operating revenues.

        Marketing. The Company’s marketing personnel seek to strengthen Transport America’s relationships with existing customers and to identify and establish new customer relationships by promoting the Company’s technological capabilities, taking advantage of the trend among shippers toward just-in-time inventory management, private fleet conversions, outsourcing of transportation requirements, and utilization of core carriers. The Company employs a marketing force located throughout its primary business areas. Senior management is also actively involved in marketing, logistics planning, and customer relations, particularly with large national customers.

        Service Centers. In 2003, the Company utilized ten strategically located service centers to provide an added level of customer service and support. These facilities are located in close proximity to major population centers or customer locations, thereby enabling the Company to provide a large amount of equipment, and local customer-service representatives to work directly with customers on a day-to-day basis. The Company believes that its service centers allow it to maintain closer relationships with its driver workforce through on-site driver amenities and interactions with service- center personnel. In February 2003, the Company made a decision to close two of the service facilities that did not fit its network and did not provide an adequate return on invested capital. The Company sold one of these facilities in 2003, and recorded a gain on the sale of approximately $1.3 million. The proceeds from this sale were primarily used to reduce debt. The Company also eliminated redundant functions throughout its other service centers, and has increased its maintenance capabilities in other facilities to provide service to its owner operators, who represented approximately 45 percent of the total fleet in 2003. These actions provided approximately $0.5 million in cost savings during 2003 and are expected to save an additional $0.7 million in annualized savings in 2004.

        Time-Definite Service. In each of its markets, the Company seeks to provide 100% on-time pickup and delivery, expedited time-in-transit, logistical planning to coordinate and deliver freight within time-definite parameters, and advanced information capabilities that provide value to customers. Time-definite transportation requires pick-ups and deliveries to be performed within narrowly defined time frames. Time-definite services are particularly important to the Company’s customers who operate just-in-time manufacturing, distribution, and retail inventory systems. The Company employs personnel at certain of its customers’ facilities to meet critical customer transportation and logistics needs.

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Human Resources

        Transport America’s human resources are an important element of its customer-focused business strategy. Employee drivers, independent contractors, and non-driver employees regularly interact with customers and are ultimately responsible for customer satisfaction. In order for the Company to grow and continue to be positioned as a quality carrier of choice for existing and new customers, the Company regularly evaluates changes to the driver’s work environment that will improve driver satisfaction. The Company continues to emphasize competitive pay packages, quality at-home time, technology that enhances the driver’s experience, and “driver friendly” freight as principal means to attract and retain its driver workforce.

        Independent Contractors. The Company believes that a fleet of both employee drivers and independent contractors is essential if the Company is to continue its growth. Independent contractors provide their own tractors, generally have a lower turnover rate than the Company has experienced with employee drivers, and have a strong emphasis on safety.

        The Company enters into operating agreements with its independent contractors, pursuant to which its independent contractors agree to furnish a tractor and driver to transport, load and unload goods on behalf of the Company. These agreements typically have terms of one year and provide for the payment to independent contractors of fixed compensation for total loaded and empty miles, as well as for performing other ancillary services. Independent contractors must pay all of their operating expenses and must meet Department of Transportation (“DOT”) regulatory requirements, as well as safety and other standards established by the Company. The Company has implemented an incentive program to encourage safe driving and good customer service habits.

        The Company has also implemented a lease-to-own program utilizing a limited number of tractors to attract and retain owner-operators. This program allows an owner-operator to lease tractors previously owned by the Company for a small down payment combined with a per-mile fee for rental and maintenance of the equipment. Ownership of the unit is transferred at the end of the lease term.

        Driver Work Environment. The market for professional truck drivers and independent contractors tightened significantly during 2003 and is expected to remain tight throughout 2004. The Company has implemented several programs to boost its recruiting efforts and increase the seated fleet percentage.

        The Company utilizes late-model, reliable equipment including standard features such as sleeper bunks, large cabins, air-ride suspensions, and anti-lock brakes. The Company also provides satellite communications technology that enables drivers to receive load-related information, directions, pay information, fueling recommendations, e-mail access, and family emergency information. The Company’s service centers are strategically located to provide services for the driver, such as showers, laundry facilities, break rooms, fuel, tractor and trailer maintenance, and in-person assistance from service center personnel.

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        Compensation and Benefits. The Company’s compensation and benefits package has been structured to compensate drivers on the basis of miles driven and ancillary services performed, with increases in base compensation commensurate with length of service. Employee driver benefits include paid vacation days, health insurance, and a Company-funded 401(k) retirement plan. Performance bonuses are paid based upon on-time performance, accident-free driving experience, and a lack of workers’ compensation incidents. The Company believes its compensation and benefits package for employee drivers and independent contractors continue to rank in the upper quartile in the truckload industry.

        Recruiting and Training. The Company’s employee drivers are hired, and independent contractors are approved, in accordance with specific Company guidelines relating to safety records, prior work history, personal evaluation, accident and driving record verification, drug and alcohol screening, and a physical examination. The Company’s initial orientation and training seminar includes a review of all Company policies and operating requirements, written and road driving tests, defensive driving and safety skills, DOT compliance requirements, and the employee driver’s and independent contractor’s role in providing safe and efficient value-added service to customers. The Company operated a training school since 2000 as a means of enhancing its recruiting efforts and tailoring driver skills to match its specific needs. The school enabled persons new to the transportation industry to obtain a commercial driver’s license (“CDL”) and to complete an extensive training program before being assigned their own truck. The Company discontinued this training program in 2003 as it identified a more cost effective training system. The new training utilizes interactive software modules to train drivers on such topics as safety, compliance, the handling of hazardous materials, equipment operation, customer expectations, and Company policies. This training is conducted at the Company’s service centers and periodically at outside training facilities under contract with the Company. The Company also conducts driver meetings, publishes a newsletter, and conducts specific professional development training, including training to become an over-the-road driver instructor.

        Driver and Independent Contractor Supervision. The Company assigns each employee driver and independent contractor to a specific fleet manager. The fleet manager’s role is to be the primary support resource for the employee driver or independent contractor. The fleet manager also communicates the work assignments and coordinates driver pay matters using satellite technology, schedules time off, reviews performance, provides day-to-day training, arranges required safety inspections, reviews performance, and is accountable for the retention and productivity of the assigned employee drivers and independent contractors.

        As of December 31, 2003, the Company employed 930 student and professional employee drivers, 96 mechanics, 326 persons in operations, marketing, training, and administration, and had agreements with independent contractors who provided 713 tractors. The Company’s employees are not represented by any collective bargaining units, and the Company considers relations with its employees and independent contractors to be good.

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Technology

        The Company has developed an integrated and highly sophisticated, client/server computer information system. This system integrates operations with the principal back-office functions of safety, maintenance, driver and independent contractor settlement, fuel, billing, and accounting. The system also includes satellite-based communications with the fleet. This system provides information directly to and from the Company, its customers, and drivers to assist in managing a complex information environment. The Company believes that technology is a cost-effective way to manage its complex operations while improving services to its customers. The Company expects to continue to employ technology solutions that enhance customer service, improve driver services, and that will enable it to realize other processing efficiencies.

        Operations and Communications. The Company utilizes information systems and satellite-based communications to process orders, optimize scheduling, dispatch loads, and monitor loads in transit. Load planners, with the benefit of optimization software, match customer orders daily with driver availability. Once the most appropriate load assignment decision is made, based on computer-monitored load factors, the load information is sent directly to the driver through the satellite network. The satellite system simplifies locating of equipment and permits timely and efficient communication of critical operating data such as shipment orders, loading instructions, routing, fuel, taxes paid and mileage operated, payroll, safety, traffic, and maintenance information.

        Electronic Data Interchange (“EDI”). The Company’s system enables full electronic data interchange of load tendering, shipment status, freight billing, and payment. This system provides significant operating advantages to the Company and its customers, including real-time information flow, reduction or elimination of paperwork, error-free transcription, and reductions in clerical personnel. EDI allows the Company to exchange data with its customers in a variety of formats, depending on the individual customer’s capabilities, which significantly enhances quality control, customer service, and efficiency. A significant portion of the Company’s revenues is currently processed through EDI.

        Internet Access. The Company provides its customers with on-line access to certain load-status information as well as the ability to retrieve document images related to customer shipments. The Company’s Web site (www.transportamerica.com) also provides access to other information for the benefit of customers, drivers, potential employees and investors. Depending upon customer needs, technological capabilities, and internal resources, the Company expects to continue to expand its use of the Internet and e-commerce. The contents of the Company’s website are not incorporated by reference into this Annual Report.

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Revenue Equipment

        The Company operates a modern fleet of tractors and trailers. Tractors are typically replaced every 48 to 60 months, based on factors such as age and condition, current interest rates, the market for used equipment, and improvements in technology and fuel efficiency. The average age of the Company-operated tractors at December 31, 2003 was approximately 34 months.

        The Company has available a variety of trailers to meet customer requirements. At December 31, 2003, these included 4,808 dry vans, most of which are logistic capable and many of which are equipped with heaters, 126 refrigerated vans, and 40 flat beds. The trailer-to-tractor ratio of 2.9 allows the Company to provide its high-volume customers with extra trailers to accommodate loading and unloading, and to improve driver and asset utilization. Depending on market conditions, the Company generally replaces trailers after seven to ten years of service. The average age of in-service trailers at December 31, 2003, was approximately 66 months.

        The following table shows the model years of the Company tractors and trailers as of December 31, 2003:

Competition

        The truckload transportation business is extremely competitive and fragmented. The Company competes primarily with other truckload carriers, particularly those in the high service end of the truckload market. The Company also competes with alternative forms of transportation, such as rail, intermodal, and airfreight, particularly in the longer haul segments of its business. Competition in the truckload industry has created pressure on the industry’s pricing structure. Generally, competition for the freight transported by the Company is based on service, equipment availability, trailer type, efficiency, freight rates, and technological capabilities. There are a number of competitors that have substantially greater financial resources, operate more equipment, and transport more freight than the Company.

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TRANSPORT CORPORATION OF AMERICA, INC.

Executive Officers

        The executive officers of Transport America are as follows:

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Available Information

The Company’s web site address is www.transportamerica.com. The Company has available on its web site annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practical after it electronically files such materials with, or furnishes it to, the SEC.

Item 2.        PROPERTIES

        The following chart provides information concerning the Company’s service centers and other facilities:

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TRANSPORT CORPORATION OF AMERICA, INC.

        At December 31, 2003, the Company’s rental payments for its leased facilities range from approximately $625 to $83,000 per month. The Company does not anticipate any difficulties renewing or continuing these leases.

        In addition to the properties listed above, Transport America leases parking and drop lot space at various locations.

Item 3.        LEGAL PROCEEDINGS

        The Company is routinely a party to litigation incidental to its business, primarily involving claims for workers’ compensation or for personal injury and property damage incurred in the transportation of freight. The Company maintains insurance, which covers liability amounts in excess of retained liabilities from personal injury and property damage claims. The Company currently carries a total of $30 million liability insurance coverage per incident.

Item 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Report.

PART II

Item 5.        MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        Price Range of Common Stock. The Company’s Common Stock is traded on the NASDAQ National Market under the symbol “TCAM”. The following table sets forth the high and low closing prices for the Company’s Common Stock, as reported by NASDAQ, for the periods indicated:

        Stockholders. As of March 4, 2004, the Company had 428 stockholders of record, including Depository Trust Company, which held of record 6,981,618 shares.

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TRANSPORT CORPORATION OF AMERICA, INC.

        Dividends. The Company has never paid any cash dividends on its Common Stock and does not intend to pay cash dividends for the foreseeable future. Any future decision as to the payment of dividends will be at the discretion of the Company’s Board of Directors and will depend upon the Company’s results of operations, financial position, cash requirements, certain corporate law restrictions, restrictions under loan agreements and such other factors as the Board of Directors deems relevant.

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TRANSPORT CORPORATION OF AMERICA, INC.

Item 6.        SELECTED FINANCIAL DATA

(In thousands, except share, per share and operating data)

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TRANSPORT CORPORATION OF AMERICA, INC.

Item 7.        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

        The primary business strategy of Transport America is to provide truckload carriage and logistics services throughout the United States and parts of Canada as an integral part of the supply chain system of its major customers. Operations are conducted primarily from the Company’s Eagan, Minnesota corporate offices, with maintenance and driver services at its ten terminal facilities located throughout the United States.

Organization of Financial Information

        This Management’s Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and other users to assess our financial condition and results of operations. Statements that are not historical are forward-looking and involve risks and uncertainties discussed under the caption “Forward-Looking Statements” in Item 1 on page 28 of this Annual Report on Form 10-K.

        The consolidated financial statements and notes are presented in Item 8 of this Annual Report on Form 10-K. Included in the consolidated financial statements are the consolidated statements of operations, consolidated balance sheets, consolidated statements of cash flows, and consolidated statements of stockholders’ equity. The notes, which are an integral part of the consolidated financial statements, provide additional information required to fully understand the nature of amounts included in the consolidated financial statements.

Significant Transactions and Financial Trends

        Throughout these financial sections, you will read about significant transactions or events that materially contribute to or reduce earnings and materially affect financial trends. Significant transactions discussed in this Management’s Discussion and Analysis include impairment charges recorded in 2003 and 2002 related to the disposal of tractors and trailers and reductions of these impairment reserves during 2003 and 2002 when the ultimate impairment proved to be less than estimated; additional charges in 2003 and 2002 for increased claim settlement costs and growth in open claims; a gain resulting from the sale of a maintenance facility in 2003; the cumulative effect of a change in accounting principle as a result of adopting FASB Interpretation (FIN) No. 46, “Consolidation of Variable Interest Entities” which required the Company to consolidate its interest in its corporate office facility and record the asset and related debt in the financial statement in 2003; the sale and leaseback of this corporate office facility in 2003; and the cumulative effect of a change in accounting principle as a result of adopting SFAS No. 142 “Goodwill and Other Intangible Assets,” which required the Company to record a goodwill impairment charge in 2002.

        These significant transactions result from unique facts and circumstances that likely will not recur with similar materiality or impact on continuing operations. While these items are important in understanding and evaluating financial results and trends, other transactions or events such as those discussed later in this Management’s Discussion and Analysis may also have a material impact. A complete understanding of these transactions and events is necessary in order to estimate the likelihood that these trends will continue.

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Significant Operating Trends

        Revenues, particularly in the latter half of the year, were negatively impacted by higher than expected unseated tractors (tractors owned by the Company for which no driver is available to assign) and the limited availability of owner operator capacity. While the hiring market has tightened significantly, the Company has taken actions that it expects will address these trends, including increasing driver pay rates.

        New Hours of Service (HOS) rules went into effect at the beginning of 2004 and the Company is committed to ensuring that its drivers do not bear the financial burden of the more restrictive limits on hours of service; accordingly, it has announced an increase in the accessorial pay for the drivers and has negotiated new accessorial charges for customer events that have the effect of decreasing asset and driver productivity. The Company is also proactively working with customers to eliminate inefficiencies in their supply chain network.

        The year 2003 was a year of significant change resulting from a rebuilding of the fundamentals of Transport America. The Company focused on achieving its strategic priorities of operational excellence, organizational excellence, and consistent profitable growth. The Company hired new leadership for its sales, operations, and risk management departments as well as in other key management positions in the company. The Company also made significant improvement in its business fundamentals throughout 2003, improving tractor and trailer utilization as measured by revenue per unit per week in spite of the higher number of unseated tractors during the latter half of the year and reducing the percentage of deadhead miles from 2002 levels.

        Ongoing cost reduction efforts continue to make Transport America more competitive and administrative productivity continued to improve in 2003. The Company initiated a broad cost reduction initiative across the organization and has reduced salaries and wages, maintenance costs, accident claim costs, depreciation and other general and administrative costs. Two service center facilities that did not fit the Company’s network were closed, one of these facilities was sold and the proceeds were used to further reduce debt. The Company eliminated redundant functions throughout other service centers and increased maintenance capabilities to provide maintenance services to its owner operators.

        The sales department successfully secured new opportunities that continue to drive density and balance in our network, and we are attaining increased freight rates as we better manage the network and customer mix. Finally, the Company has restructured its leasing arrangement for its corporate office facility, and significantly strengthened the balance sheet in 2003 by exceeding our debt reduction plan and eliminating under-productive assets.

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Outlook

         Looking forward, the Company expects the rate environment to remain strong throughout fiscal 2004. An improving economy and limited driver availability will continue to put pressure on truckload capacity. Sequentially, the Company has experienced four quarters in a row of increased rates and expects this trend to continue into 2004.

         The Company does expect some of its costs to increase in 2004. The tight driver market will put upward pressure on driver hiring expenses, insurance costs will continue to increase, and tractor replacements in 2004 will be required to comply with new EPA standards that will lead to increased depreciation expenses and reduced fuel efficiency.

        New hours of service rules came into effect in January 2004. The Company believes it is minimizing the impact of the new hours of service rules through proactive planning; however, the Company is unable to predict the ultimate impact of the new hours of service rules. These changes could have an adverse effect on the operations and profitability of the Company. Effective January 2004, the Company increased its accessorial charges to customers for multiple stop shipments and its rates for equipment detention. The Company also raised its driver stop pay and driver detention pay.

        The biggest challenge for the Company and the industry is seated capacity since the market for new drivers has tightened significantly. The Company has implemented several programs to boost its recruiting efforts and increase the seated fleet percentage.

Regulations

The Federal Motor Carrier Safety Administration (FMCSA) of the U.S. Department of Transportation issued a final rule on April 24, 2003 that made several changes to the regulations that govern truck drivers’ hours of service. Under the new rules, loading / unloading delays and shipments that require multiple stop deliveries may be affected as the new rules may limit drivers’ available hours. The new rules became effective on January 4, 2004 and the Company continues to evaluate the new rules to determine the effect they may have on its operations.

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Results of Operations

        The following table sets forth certain operating and other expense items as a percentage of operating revenues for the periods indicated:

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Year Ended December 31, 2003, Compared to Year Ended December 31, 2002

        Operating revenues, including fuel surcharges, were $258.9 million for the year ended December 31, 2003, compared to $273.2 million for the year ended December 31, 2002, a decrease of 5.2%. Fuel surcharges were $10.8 million and $5.3 million for the years ended December 31, 2003 and 2002, respectively, reflecting the effect of higher fuel costs in 2003. Excluding fuel surcharges, revenues decreased 7.4% when compared to 2002. Revenues in the latter half of the year were negatively impacted by lower than expected seated tractors and the limited availability of independent contractor capacity. Seated Company and independent contractor average tractor counts by quarter was as follows:

While the hiring market has tightened significantly, the Company has taken actions that it expects will address these trends, including increasing driver pay rates and accessorial compensation.

        The Company measures revenue excluding fuel surcharges, or “freight revenue,” in addition to operating revenue, because management believes removing this sometimes volatile source of revenue affords a more consistent basis for comparing results of operations from period to period. Operating revenues per mile, which includes fuel surcharges, were $1.32 per mile for 2003 compared to $1.27 for 2002. Freight revenues per mile, which excludes fuel surcharges, were $1.27 per mile for 2003, compared to $1.24 for 2002. The increase in 2003 is primarily a result of lower deadhead miles and rate increases achieved with our customers. Equipment utilization, as measured by average operating revenues per tractor per week (including fuel surcharges), was $2,846 during 2003, compared to $2,769 for 2002. Equipment utilization, as measured by average freight revenues per tractor per week (excluding fuel surcharges), was $2,726 during 2003, compared to $2,714 for 2002. The increase in equipment utilization in 2003 reflects lower deadhead miles, offset by a decrease in the number of seated tractors, when compared to the same period of 2002.

        At December 31, 2003, the Company’s fleet included 1,000 Company-owned tractors and 713 tractors provided by independent contractors compared to 1,057 Company-owned tractors and 836 tractors provided by independent contractors at December 31, 2002. At December 31, 2003, 178 tractors were unseated compared to 45 unseated tractors at December 31, 2002. The increase in unseated tractors in 2003 is due to difficulties in recruiting and retaining professional and student drivers.

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        Logistics revenues were $2.7 million and $5.7 million in 2003 and 2002, respectively. The majority of the decrease in logistics revenues is due to the elimination of a specific lane of business for a specific customer that did not fit our operating strategy. Profit contribution related to the logistics revenue was $0.5 million and $1.0 million in 2003 and 2002, respectively.

        During 2003, Company-owned tractors averaged 54.4% of all available tractors, compared to 59.0% in 2002, with the remaining portion of the tractor fleet provided by independent contractors. The shift from Company drivers to owner-operators is primarily due to the success of the Company's lease-to-own program. As a result of the change in mix as a percentage of the total fleet, independent contractors drove a greater proportion of miles in 2003 than in the prior year. Accordingly, certain expenses, as a percentage of revenues, shifted among several expense categories in 2003 when compared to 2002. At December 31, 2003 and 2002, respectively, the Company’s fleet included 1,000 and 1,057 Company-owned tractors, and 713 and 836 tractors owned by independent contractors.

        Salaries, wages and benefits expenses, as a percentage of operating revenues, were 27.5% for 2003 compared to 29.4% for 2002. The decrease reflects a lower percentage of miles driven by Company drivers, lower driver assessorial wages due to reduced stop-offs, detentions, and layovers; and a reduction in non-driver payroll expense in 2003, offset by higher workers’ compensation insurance and claims costs. The reduction in non-driver payroll is primarily the result of closing two service centers. Workers’ compensation claims expense was $3.4 million in 2003 compared with $3.1 million in 2002. New Hours of Service (HOS) rules went into effect on January 4, 2004, which will have a significant impact on the way the Company does business. The Company is committed to ensuring that its drivers do not bear the financial burden of the more restrictive limits on hours of service and has announced an increase in the accessorial pay for the drivers and it has negotiated new accessorial charges for the customer events that decrease asset and driver productivity. The Company is also proactively working with customers to eliminate inefficiencies in their supply chain network.

        Fuel, maintenance and other expenses, as a percentage of operating revenues, were 15.0% for 2003 compared to 14.2% for 2002. The increase is primarily a result of increased maintenance and tire replacement costs offset by a lower proportion of miles driven by Company drivers. The Company replaced 250 tractors during 2003 with Mercedes engines, as these engines were not subject to the new emission standards that went into effect for domestic engines produced in 2003. Management believes this proven technology will offer better fuel efficiency and reliability in its fleet. The majority of the tractor replacements in 2004 will require engines that meet the new emission standards. Management believes these engines will cost more to purchase and to operate.

        Purchased transportation, as a percentage of operating revenues, was 35.4% for 2003 compared to 33.6% for 2002. The increase reflects the higher proportion of miles driven by independent contractors in 2003 and higher pass-through of fuel surcharge revenues to independent contractors as a reflection of higher fuel costs.

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        Depreciation and amortization, as a percentage of operating revenues, was 9.7% for 2003, compared to 10.1% for 2002. The decrease is primarily a result of a reduction in the number of company owned tractors and trailers. In fiscal 2003, the Company owned an average of 1,016 tractors and 5,226 trailers. In fiscal 2002, the Company owned an average of 1,183 tractors and 5,739 trailers. The decrease in the number of tractors was the result of the Company’s plan to dispose of certain tractors that did not have manufacturer’s residual value guarantees. These tractors were used in the Company’s lease-to-own program, which allows independent contractors the opportunity to lease these used tractors from the Company and purchase them at the end of the lease term. The reduction in the trailer fleet is due to the identification of trailers in excess of the Company’s needs.

        Insurance, claims and damage expenses, as a percentage of operating revenues, were 4.7% for 2003, compared to 5.0% for 2002. The decrease is due to a reduction in the number and severity of accidents in 2003 compared to 2002, and to fourth quarter adjustments to increase accident and workers’ compensation reserves of $1.8 million in 2003 compared to fourth quarter adjustments of $2.6 million in 2002 as a result of increased claim settlement costs and growth in open claims, offset by higher premiums. Insurance, claims and damage expense was $12.3 million in 2003 compared to $13.6 million in 2002.

        Taxes and licenses, as a percentage of operating revenues, were consistent at 1.8% for 2003 and 2002.

        Communications expenses, as a percentage of operating revenues, were consistent at 0.8% for 2003 compared to 0.9% for 2002. Looking forward, the Company expects lower communication costs due to contract renegotiations for voice communications that go into effect in 2004.

        Other general and administrative expenses, as a percentage of operating revenues were 3.7% for 2003, compared to 3.3% for 2002. The increase is primarily a result of increased security costs at the service centers, employee-moving expenses, increased consulting fees, and increased software maintenance fees.

        Impairment of revenue equipment was a credit to income of $549,000 or 0.2% of operating revenue in 2003, compared to an expense of $4.7 million, or 1.7% of operating revenues in 2002. During March 2002, the Company initiated a plan to accelerate the disposal of approximately 260 tractors and 500 trailers. As a result of the change in the utilization period and the related estimated cash flows, the Company recorded a pre-tax $4.7 million impairment charge under Statement of Financial Accounting Standards (“SFAS”) No. 144 related to this disposition of revenue equipment. This initial impairment program was substantially completed during the first quarter 2003. An analysis of this initial impairment reserve demonstrated that the ultimate impairment on this disposal programs was less than originally estimated and the reserve was reduced by $1.0 million in the fourth quarter of 2002 and a further $278,000 in the first quarter of 2003. During the fourth quarter 2002, the Company established an additional disposal program for 400 trailers that it intended to dispose of in 2003. The impairment charge on this disposal program was estimated to be approximately $1.0 million. The ultimate impairment on this disposal programs was less than originally estimated by approximately $271,000; accordingly, this amount was reversed and recorded as income in the fourth quarter of 2003.

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TRANSPORT CORPORATION OF AMERICA, INC.

        Gain on the disposition of property and equipment was $1.3 million in 2003 related primarily to the disposition of real estate property, compared to a gain of $36,000 in 2002.

        As a result of the items discussed above, the Company’s operating ratio (operating expenses as a percentage of operating revenues) was 98.3% for 2003, compared to 100.3% for 2002.

        Net interest expense, as a percentage of operating revenues, was 1.7% for 2003, compared to 2.0% for 2002. The decrease reflects lower average outstanding debt balances during 2003.

        The effective tax expense rate for 2003 was 68.7%, compared to an effective tax benefit rate of 42.6% for 2002. The tax expense rate in 2003 is primarily a result of the effect of non-deductible items for tax purposes in relation to low pre-tax income. The 2002 tax benefit rate of 42.6% includes a 4.7% benefit due to a favorable adjustment related to tax contingency reserves.

        Net income before the effect of changes of accounting principle was $74,000, or 0.02% of operating revenues for 2003, compared to a net loss of $3.7 million, or 1.3% of operating revenues for 2002.

        In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, “Accounting for Asset Retirement Obligations” effective for fiscal years beginning after June 15, 2002. The rule requires businesses to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. It has been determined that SFAS 143 applies to environmental disposal fees related to tractor and trailer tires. As a result of its adoption of SFAS No. 143 in the first quarter of 2003, the Company established a liability of $212,000 for the fair value of tire disposal fees. In addition, the Company recorded a prepaid asset related to tire disposal fees of $106,000 and a charge of $64,000, net of a tax benefit of $42,000, representing the cumulative effect of change in accounting principle.

        In 1999, the Company entered into a lease arrangement for its corporate office facility, which has been financed by a special purpose entity (“SPE”) sponsored by a bank. The SPE was not consolidated in the Company’s financial statements and the Company had accounted for this arrangement as an operating lease in accordance with SFAS No. 13, “Accounting for Leases.” In conjunction with this arrangement, the Company had a residual value guarantee of up to $11.2 million, plus selling costs, if the Company did not exercise its purchase option and the property was sold for less than $13.0 million, the Asset Termination Value. In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities”, which was initially effective in the first fiscal year or interim period beginning after June 15, 2003. On October 8, 2003, the FASB deferred the implementation date for SPE’s from interim periods beginning after June 15, 2003 to interim periods ending after December 15, 2003. The Company evaluated the treatment of this leasing arrangement under Interpretation No. 46 and concluded the pronouncement required the Company to record the asset and related liability in its financial statements. The Company elected early adoption and the prospective application provisions of Interpretation No. 46, and accordingly, recorded an asset of $11.2 million, the related debt of $13.0 million, and a cumulative-effect adjustment to earnings of $1.1 million (net of tax benefit of $0.7 million).

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        Upon its adoption of SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company recorded a goodwill impairment charge of $16.7 million, net of tax benefit of $7.7 million benefit, as a cumulative effect of change in accounting principle in 2002. At December 31, 2001, the carrying value of goodwill, net of amortization, was $24.4 million.

        Net loss including the cumulative effect of changes in accounting principle was $1.1 million or 0.4% of operating revenues for 2003, compared to a net loss of $20.4 million or 7.4% of operating revenues for the year ended December 31, 2002.

Year Ended December 31, 2002, Compared to Year Ended December 31, 2001

        Operating revenues, including fuel surcharges, were $273.2 million for the year ended December 31, 2002, compared to $274.6 million for the year ended December 31, 2001, a decrease of 0.5%. Fuel surcharges were $5.3 million and $9.3 million for 2002 and 2001, respectively, reflecting the effect of lower fuel costs in 2002. The Company measures revenue before fuel surcharges, or “freight revenue,” in addition to operating revenue, because management believes removing this sometimes volatile source of revenue affords a more consistent basis for comparing results of operations from period to period. Excluding fuel surcharges, revenues increased 1.0% when compared to 2001. This increase reflects additional business with existing customers along with several significant new customer relationships offset by the loss of the Sears, Roebuck, and Co. business and continued pricing pressure from the market. Operating revenues per mile, which includes fuel surcharges, were $1.27 per mile for 2002 compared to $1.31 for 2001. Freight revenues per mile, which excludes fuel surcharges, were $1.24 per mile for 2002, compared to $1.27 for 2001. Equipment utilization, as measured by average operating revenues per tractor per week (including fuel surcharges), was $2,769 during 2002, compared to $2,660 for 2001. Equipment utilization, as measured by average freight revenues per tractor per week (excluding fuel surcharges), was $2,714 during 2002, compared to $2,568 for 2001. The increase in 2002 reflects higher miles per tractor per week and a lower percentage of empty miles driven, offset by a lower average rate per mile.

        Logistics revenues were $5.7 million and $6.2 million in 2002 and 2001, respectively. The decrease is due to the loss of certain logistics traffic when Sears, Roebuck and Co. gave notice to terminate their business with the Company.

        During 2002, Company-owned tractors averaged 59.0% of all available tractors, compared to 63.2% in 2001, with the remaining portion of the tractor fleet provided by independent contractors. The shift from Company drivers to owner-operators is primarily due to the success of the Company’s lease-to-own program. As a result, independent contractors drove a greater proportion of miles in 2002 than in the prior year. Accordingly, certain expenses, as a percentage of revenues, shifted among several expense categories in 2002 when compared to 2001. At December 31, 2002 and 2001, respectively, the Company’s fleet included 1,057 and 1,293 Company-owned tractors, and 836 and 724 tractors owned by independent contractors.

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TRANSPORT CORPORATION OF AMERICA, INC.

        Salaries, wages and benefits expenses, as a percentage of operating revenues, were 29.4% for 2002, compared to 30.0% for 2001. The decrease reflects a lower percentage of miles driven by Company drivers, lower driver assessorial wages due to reduced stop-offs, detentions, and layovers, and a reduction in non-driver payroll expense in 2002, offset by higher workers’ compensation expenses. The reduction in non-driver payroll is the result of a full-year’s impact of personnel reductions made primarily in 2001. Efficiency as measured by average total revenues per non-driver employee was $593,000 for 2002 compared to $555,000 for 2001. Workers’ compensation claims expense was $3.1 million in 2002 compared with $2.1 million in 2001.

        Fuel, maintenance and other expenses, as a percentage of operating revenues, were 14.2% for 2002 compared to 14.8% for 2001. The decrease is primarily a result of fewer Company miles offset by increased toll and other fleet operating expenses.

        Purchased transportation, as a percentage of operating revenues, was 33.6% for 2002 compared to 31.6% for 2001. The increase reflects the higher proportion of miles driven by independent contractors in 2002 offset by a lower pass-through of fuel surcharge revenues to independent contractors as a reflection of lower fuel costs.

        Depreciation and amortization, as a percentage of operating revenues, were 10.1% for 2002, compared to 11.0% for 2001. The decrease is primarily a result of a reduction in the number of company owned tractors and trailers as well as the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets,” under which no amortization was recorded in 2002 and goodwill was entirely written off as a cumulative effect of an accounting change in the first quarter of 2002. Amortization of goodwill in 2001 was $1.1 million, or 0.4% of revenue.

        Insurance, claims and damage expenses, as a percentage of operating revenues, were 5.0% for 2002, compared to 3.7% for 2001. The increase is due to higher premiums, higher than expected costs to settle claims, and higher than expected estimated growth in open claims. Accident claims expense was $10.7 million in 2002 compared to $7.6 million in 2001. Fourth quarter 2002 includes a $2.6 million charge for higher than expected costs to settle accident claims, as well as higher than expected estimated growth related to open claims.

        Taxes and licenses, as a percentage of operating revenues, were 1.8% for 2002, compared to 1.9% for 2001. The percentage decrease is primarily a result of a lower proportion of miles driven by company drivers when compared to 2001.

        Communications expenses, as a percentage of operating revenues, were 0.9% for 2002, compared to 1.0% for 2001.

        Other general and administrative expenses, as a percentage of operating revenues were 3.3% for 2002, compared to 3.4% for 2001. The decrease is primarily a result of a full-year’s benefit of expense reduction initiatives implemented throughout 2001. In addition, the Company incurred expenses of $0.6 million associated with management changes in the fourth quarter of 2001.

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TRANSPORT CORPORATION OF AMERICA, INC.

        Impairment of revenue equipment was $4.7 million, or 1.7% of operating revenues. In the first quarter of 2002, the Company identified a group of 260 tractors and approximately 500 trailers that it intended to dispose within the next year. Accordingly, these assets were written down to their estimated fair value under the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The tractors identified for accelerated disposition represent over-the-road units not covered by manufacturer guaranteed residual value programs. The trailers to be disposed had been identified as being in excess of the Company’s needs. While the company continued to dispose of these assets into the first quarter of 2003, an analysis of the initial impairment reserve demonstrated that the ultimate impairment on these disposal programs would be less than originally estimated by approximately $1.0 million and the reserve was reduced accordingly in the fourth quarter of 2002. During the fourth quarter, the Company established a new disposal program of an additional 400 trailers that would be disposed of over the course of the next year. The estimated impairment charge on this new disposal program was estimated to be approximately $1.0 million, which was recorded in the fourth quarter.

        Gain on the disposition of property and equipment was $36,000 in 2002, compared to a loss of $318,000 in 2001. Results include a loss in 2001 of approximately $166,000 related to the disposition of real estate property.

        As a result of the items discussed above, the Company’s operating ratio (operating expenses as a percentage of operating revenues), including the $4.7 million impairment loss, was 100.3% for 2002, compared to 97.5% for 2001.

        Net interest expense, as a percentage of operating revenues, was 2.0% for 2002, compared to 2.6% for 2001. The decrease primarily reflects lower average outstanding debt balances and lower effective borrowing rates during 2002.

        The effective tax benefit rate for 2002 was 42.6%, compared to an effective tax expense rate of 13.9% for 2001. The tax expense rate in 2001 is primarily a result of the effect of non-deductible items for tax purposes in relation to low pre-tax losses. In addition, the 2002 tax benefit rate of 42.6% includes a 4.7% benefit due to a favorable adjustment related to tax contingency reserves.

        Net loss before the effect of a change of accounting principle, was $3.7 million, or 1.3% of operating revenues, for 2002, compared to a net loss of $352,000, or 0.1% of operating revenues, for 2001.

        Upon its adoption of SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company recorded a goodwill impairment charge of $16.7 million, net of tax benefit of $7.7 million benefit, as a cumulative effect of change in accounting principle. At December 31, 2001, the carrying value of goodwill, net of amortization, was $24.4 million.

        Net loss, including the cumulative effect of a change in accounting principle was $20.4 million or 7.4% of operating revenues for 2002, compared to a net loss of $352,000 or 0.1% of operating revenues for the year ended December 31, 2001.

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TRANSPORT CORPORATION OF AMERICA, INC.

Critical Accounting Policies

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make decisions based upon estimates, assumptions, and factors it considers as relevant to the circumstances. Such decisions include the selection of applicable accounting principles and the use of judgment in their application, the results of which impact reported amounts and disclosures. Changes in future economic conditions or other business circumstances may affect the outcomes of management’s estimates and assumptions. Accordingly, actual results could differ from those anticipated. A summary of the significant accounting policies followed in preparation of the financial statements is contained in Note 1 of the financial statements attached hereto. Other footnotes describe various elements of the financial statements and the assumptions on which specific amounts were determined. Not all of these significant accounting policies require management to make difficult subjective or complex judgments or estimates. An accounting estimate is considered to be critical if it meets both of the following criteria: (i) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made, and (ii) different estimates reasonably could have been used or changes in the estimate that are reasonably likely to occur from period to period would have a material impact on the presentation of the financial condition or results of operations. The Company’s critical accounting policies include the following:

Revenue Equipment, Property, and Other Equipment. Revenue equipment, property, and other equipment are recorded at cost. Depreciation, including amortization of capitalized leases, is computed using the straight-line basis over the estimated useful lives of the assets or the lease periods, whichever is shorter. As part of a purchase program with a tractor manufacturer, the Company has obtained residual value guarantees for a significant portion of its tractors. Management must make significant estimates regarding the useful lives and salvage values for purposes of depreciating tractors and trailers. A ten percent decrease in estimated salvage values on tractors and trailers would have decreased the Company’s net revenue equipment as of December 31, 2003 by approximately $2.0 million.

Estimated Liability for Insurance Claims. Management estimates accruals for the self-insured portion of pending accident liability, workers’ compensation, physical damage, and cargo damage claims. In the month claims are reported, the Company estimates and establishes a liability for its share of ultimate settlements using all available information, coupled with the Company’s history of such claims. Claim estimates are adjusted as additional information becomes available. The recorded expense depends upon actual loss experience and changes in estimates of settlement amounts for open claims that have not been fully resolved. However, final settlement of these claims could differ materially from the amounts the Company has accrued at year-end. If the accident and property claims settlement experience worsened by ten percent, the estimated outstanding loss reserves as of December 31, 2003 would have needed to increase by approximately $1.0 million. If the workers’ compensation settlement experience worsened by ten percent the outstanding loss reserves as of December 31, 2003 would have needed to increase by approximately $0.2 million.

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TRANSPORT CORPORATION OF AMERICA, INC.

Impairment of Long-Lived Assets. Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Liquidity and Capital Resources

        Net cash provided by operating activities was $28.6 million, $29.2, and $37.3 million, for the years ended December 31, 2003, 2002, and 2001, respectively. During 2003, 2002, and 2001, the net change of operating assets and liabilities provided cash of $6.9 million, $3.3 million and $4.9 million, respectively. The primary changes in operating assets and liabilities relate to reduced accounts receivables as a result of lower revenues and ongoing collection efforts, reduced accounts payables, reduced lease receivables as independent contractors who participate in the Company’s lease to own program continue to make payments under the program, and increased accrued insurance, claims and damage expense.

Investing activities consumed cash of $11.3 million in 2003, including $10.5 million for the purchase of new revenue equipment, net of proceeds from the disposition of used revenue equipment, and $0.8 million for software development and purchases of other equipment. Investing activities consumed cash of $7.6 million in 2002, including $6.2 million for the purchase of new revenue equipment, net of proceeds for the disposition of used revenue equipment, and $1.4 million for software development and purchases of other equipment. Investing activities consumed cash of $7.1 million in 2001, including $5.4 million for the purchase of new revenue equipment, net of proceeds from the disposition of used revenue equipment, and $1.6 million for software development and purchases of other equipment. In 2003, 2002, and 2001, the Company acquired 250, 334, and 170 tractors, respectively and disposed of 318, 582, and 133 tractors, respectively. In addition, the Company disposed of 481, 459, and 135 trailers in 2003, 2002, and 2001, respectively.

Net cash consumed by financing activities in 2003 was $15.3million, including $2.5 million net repayments to the Company’s credit facility, $32.5 million for repayments of long-term debt, and $20.5 million from proceeds from the issuance of new long-term debt associated with new revenue equipment. Net cash consumed by financing activities in 2002 was $22.6million, including $16.5 million net repayments to the Company’s credit facility, $27.9 million for repayments of long-term debt, and $21.4 million from proceeds from the issuance of new long-term debt associated with new revenue equipment. Net cash consumed by financing activities in 2001 was $28.9million, including $41.2 million net repayments to the Company’s credit facility, $20.8 million for repayments of long-term debt, and $35.9 million from proceeds from the issuance of new long-term debt associated with new revenue equipment and the refinancing of certain used revenue equipment previously financed under the credit facility.

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At December 31, 2003, 2002 and 2001, the Company had $3.2 million, $0, and $6.7 million outstanding commitments for the purchase of revenue equipment, respectively.

        In 1997, the Board of Directors approved repurchasing up to 350,000 shares of the Company’s common stock. The Company repurchased 84,700 shares of its own common stock during 2003. As of December 31, 2003, the Company has repurchased 229,400 shares, leaving 120,600 shares available for repurchase under this authority. On March 10, 2004, the Board of Directors approved repurchasing an additional 500,000 shares of the Company’s common stock.

        Working capital was negative $33,000 at December 31, 2003, and negative $8.2 million at December 31, 2002. The Company relies primarily on its operating cash flows and available borrowings under its credit facility to satisfy its short-term capital and debt-service requirements.

        The Company has a credit agreement for a secured credit facility with maximum combined borrowings and letters of credit of $30 million. The credit agreement expires in October 2004. Amounts actually available under the credit facility are limited by the Company’s accounts receivable and unencumbered revenue equipment. In May 2003, the Company requested a reduction in this credit agreement from $40 million to $30 million in order to align amounts available based on the limits and reduce the bank commitment fee expense. At December 31, 2003, the Company had additional amounts available under its credit facility of $16.7 million based on available borrowing and collateral requirements. The credit facility is used to meet working capital needs, purchase revenue equipment and other assets, and to satisfy letter of credit requirements associated with the Company’s self-insured retention arrangements. At December 31, 2003, there were no outstanding borrowings against this credit facility. At December 31, 2003, the Company had outstanding letters of credit of $4.3 million against this credit facility. The credit agreement contains certain financial covenants, which include maintenance of a minimum net worth, maintenance of a consolidated funded indebtedness to consolidated earnings before interest, taxes, depreciation, amortization and lease rental expenses, and maintenance of a minimum cash flow coverage ratio. The Company was in compliance with these covenants at December 31, 2003. The Company expects to continue to fund its liquidity needs and anticipated capital expenditures with cash flows from operations, the credit facility, and other borrowing arrangements related to revenue equipment purchases.

        The Company had outstanding subordinated debt originating from the repurchase of its shares that carried certain repurchase rights and were issued in connection with the 1998 acquisition of North Star Transport. The subordinated debt agreements, as renegotiated in 2001 and again in 2002, provided for repayment through a combination of fixed quarterly payments and variable quarterly payments based on actual pre-tax earnings through the maturity date of December 2005. In October 2002, a principal payment of $4.0 million was made to reduce the outstanding debt, as allowed by the second amendment. At December 31, 2002, there was $4.6 million of subordinated debt outstanding. Scheduled quarterly principal payments of $1.0 million were made through September 2003 to reduce the outstanding debt to $3.6 million. During December 2003, the remaining balance of the subordinated debt was paid off.

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TRANSPORT CORPORATION OF AMERICA, INC.

Off-Balance Sheet Arrangements and Contractual Obligations

It is not the Company’s usual business practice to enter into off-balance sheet arrangements, except for off-balance sheet arrangements related to operating lease commitments and letters of credit for self-insured workers’ compensation reserves disclosed in the table of contractual obligations below. While it is not the Company’s normal policy to issue guarantees to third parties, the Company entered into lease arrangements in 2002 for revenue equipment that are classified as operating leases. The lease agreements are for terms of 48 months and contain TRAC (terminal rental adjustment clause) provisions, which require the Company to guarantee a termination value as a percentage of the original cost of the leased equipment at the lease termination date. The maximum potential amount the Company could be required to pay under the guarantee is $1.1 million.

        The following tables set forth the Company’s contractual obligations on balance sheet and off-balance sheet obligations as of December 31, 2003:

Payments Due by Period
(In thousands)

        In 1999, the Company entered into a lease arrangement for its corporate office facility, which has been financed by a special purpose entity (“SPE”) sponsored by a bank. The SPE was not consolidated in the Company’s financial statements and the Company had accounted for this arrangement as an operating lease in accordance with SFAS No. 13, “Accounting for Leases.” In conjunction with this arrangement, the Company had a residual value guarantee of up to $11.2 million, plus selling costs, if the Company did not exercise its purchase option and the property was sold for less than $13.0 million, the Asset Termination Value. As discussed more fully in Note 1 to the consolidated financial statements, the Company evaluated the treatment of this

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leasing arrangement under Interpretation No. 46 and concluded the pronouncement required the Company to record the asset and related liability in its financial statements. The Company elected early adoption and the prospective application provisions of Interpretation No. 46, and accordingly, recorded an asset of $11.2 million, the related debt of $13.0 million, and a cumulative-effect adjustment of $1.1 million (net of tax benefit of $0.7 million). The Company sold its rights in this property on December 23, 2003 and concurrent with the sale signed a thirteen-year lease for the two-thirds of the building the Company currently occupies. This transaction has been accounted for as a sale-leaseback and thus the related asset and long-term debt balances have been removed from the balance sheet.

Forward-looking Statements

        Statements included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the Company’s Annual Report, elsewhere in this Report, in future filings by the Company with the SEC, in the Company’s press releases, and in oral statements made with the approval of an authorized executive officer which are not historical or current facts, are forward-looking statements made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. The following important factors, among other things, in some cases have affected and in the future could affect the Company’s actual results and could cause the Company’s actual financial performance to differ materially from that expressed in any forward-looking statement: (1) the highly competitive conditions that currently exist in the Company’s market and the Company’s ability to compete, (2) the Company’s ability to recruit, train, and retain qualified drivers, (3) increases in fuel prices, and the Company’s ability to recover these costs from its customers, (4) the impact of environmental standards and regulations on new revenue equipment, (5) changes in governmental regulations applicable to the Company’s operations, including the changes related to hours of service which went into effect on January 4, 2004, (6) adverse weather conditions, (7) accidents, (8) the market for used revenue equipment, (9) changes in interest rates, (10) cost of liability insurance coverage, and (11) downturns in general economic conditions affecting the Company and its customers. The foregoing list should not be construed as exhaustive, and the Company disclaims any obligation subsequently to revise or update any previously made forward-looking statements. Unanticipated events are likely to occur.

Seasonality

        As is typical in the truckload industry, the Company’s operations fluctuate seasonally according to customer shipping patterns, which tend to peak in the summer and fall, then increase again after the holiday and winter seasons. Operating expenses also tend to be higher during the cold weather months, primarily due to lower fuel economy and increased maintenance costs.

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Inflation

        Many of the Company’s operating expenses are sensitive to the effects of inflation, which could result in higher operating costs. With the exception of fuel price increases in 2003 and 2002, the effects of inflation on the Company’s business have not been significant during the last three years. The Company has in place with the majority of its customers fuel surcharge provisions that allow the Company to partially recover additional fuel costs when fuel prices exceed a certain reference price per gallon.

Item 7A.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from changes in interest rates and commodity prices.

Interest Rate Risk

        The Company is exposed to certain market risks with its $30 million credit agreement, of which $0 was outstanding at December 31, 2003. The agreement bears interest at a variable rate, which was 5.0% at December 31, 2003. Consequently, the Company is exposed to the risk of greater borrowing costs if interest rates increase.

Commodity Price Risk

        The price and availability of diesel fuel are subject to fluctuations due to changes in the level of global oil production, seasonality, weather, and other market factors. Historically, the Company has been able to recover a majority of fuel price increases from customers in the form of fuel surcharges. The Company cannot predict the extent to which high fuel price levels will occur in the future or the extent to which fuel surcharges could be collected to offset such increases. As of December 31, 2003, the Company had no derivative financial instruments to reduce its exposure to fuel price fluctuations.

Item 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The financial statements described in Item 14(a)1 of this report are incorporated herein. See “Quarterly Financial Data” appearing on page F-25 of the audited consolidated financial statements, which are incorporated herein, by reference.

Item 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        Not applicable.

Item 9A.        CONTROLS AND PROCEDURES

        The Company’s management, including the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 under the Securities

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Exchange Act of 1934 (the “1934 Act”) as of December 31, 2003. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports it files or submits under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

        There have been no changes in internal control over financial reporting during the quarter ended December 31, 2003 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART III

Item 10.        DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        For information concerning the Company’s executive officers, reference is made to the information set forth under the caption “Executive Officers” located in Item 1 of this Form 10-K. For information concerning the Company’s directors and compliance by the Company’s directors, executive officers and significant stockholders with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended, reference is made to the information set forth under the captions “Election of Directors” and “Beneficial Ownership of Common Stock,” respectively, in the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 27, 2004, to be filed pursuant to Regulation 14A, which information is incorporated herein by reference.

Item 11.        EXECUTIVE COMPENSATION

        Reference is made to the information set forth under the caption “Executive Compensation and Other Information” in the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 27, 2004, to be filed pursuant to Regulation 14A, which information is incorporated herein by reference, except to the extent stated therein.

Item 12.        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        Reference is made to the information set forth under the caption “Beneficial Ownership of Common Stock” and under “Executive Compensation and Other Information –Equity Compensation Plan Information” in the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 27, 2004, to be filed pursuant to Regulation 14A, which information is incorporated herein by reference.

Item 13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        None.

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Item 14.        PRINCIPAL ACCOUNTANT FEES AND SERVICES

        The information required by this item is incorporated by reference to the information set forth under the heading “Approval of Auditors – Audit Fees” in the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held May 27, 2004, to be filed pursuant to Regulation 14A, which information is incorporated herein by reference.

Item 15.        EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

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SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

        Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1

TRANSPORT CORPORATION OF AMERICA, INC.

Independent Auditors’ Report

The Board of Directors and Stockholders
Transport Corporation of America, Inc.:

We have audited the accompanying consolidated balance sheets of Transport Corporation of America, Inc. and subsidiaries (the “Company”) as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Transport Corporation of America, Inc. and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets, on January 1, 2002 and the provisions of FASB Interpretation No. 46, Consolidation of Variable Interest Entities, on July 1, 2003.

/s/ KPMG LLP

Minneapolis, Minnesota
February 6, 2004, except for note 5,
   which is as of March 10, 2004

F-2

TRANSPORT CORPORATION OF AMERICA, INC.

Consolidated Balance Sheets
(In thousands, except share and per share amounts)

See accompanying notes to consolidated financial statements

F-3

TRANSPORT CORPORATION OF AMERICA, INC.

Consolidated Statements of Operations
(In thousands, except share and per share amounts)

See accompanying notes to consolidated financial statements.

F-4

TRANSPORT CORPORATION OF AMERICA, INC.

Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

See accompanying notes to consolidated financial statements.

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TRANSPORT CORPORATION OF AMERICA, INC.

Consolidated Statements of Cash Flows
(In thousands)